(1.) THE point at issue in this case is stated in the question which has been referred to this Court by the Income-tax Tribunal, Bombay Bench, by their order dated 31st August, 1949, which is "whether, in the circumstances of the case and having regard to the proviso (b) to Section 10(2)(vii), the part of the depreciation allowance (to which effect could not be given), viz., Rs. 12,505 (Rs. 23,990 minus Rs. 8,228, and minus Rs. 3,257), could be treated as loss of profits under the head business, and apportioned amongst the partners under proviso 2 to Section 24(1) of the Income-tax Act."
(2.) THE case as stated by the Income-tax Tribunal is as follows :-
"2. THE assessee is a registered firm known by the name Laxmichand Jaiporia Spinning and Weaving Mills. It is the proprietor of the Spinning and Weaving Mill known as Laxmichand Jaiporia Spinning and Weaving Mills. In the previous year ended Kartik Vadi 14, 1998, relevant to the assessment year 1942-43, its income from property was computed at Rs. 2,897 and its income from other sources was computed at Rs. 360. Its income from the mills without providing for depreciation under Section 10(2)(vi) of the Indian Income-tax Act amounted to Rs. 8,228. THE depreciation allowance permissible to the assessee for the year of account amount to Rs. 23,990. THE assessee has also to its credit unabsorbed balance of the depreciation allowance brought forward from the preceding year amounting to Rs. 27,012. According to the assessee its income should have been computed as follows :-
Business profit : Rs. 8,228.
Less : Depreciation (Rs. 23,990 depreciation on account of the year of account and Rs. 27,012 on account of the unabsorbed balance of depreciation allowance : Rs. 51,002.
Total business los : Rs. 42,774.
The Income-tax Officer having allowed, under Section 24(1) of the Act, a set-off against the income from property and other sources amounting to Rs. 3,257 (2,897 plus 360), the net loss amounting to Rs. 39,517 (42,774 minus 3,257), according to the assessee, should have been apportioned amongst the partners of the firm and that the loss so apportioned should have been set off against their profits in their individual assessments as laid down in proviso 2 to Section 24(1) of the Act. The department, on the other hand, relying upon Section 10(2) (vi), proviso (b), contended that the assessee was only entitled to claim depreciation allowance, to the extent of the business profits of the year of account and that the balance of the depreciation allowance, viz., Rs. 42,774 (Rs. 51,002 minus Rs. 8,228) should be carried forward. The Income-tax Officer having allowed under Section 24(1) the set-off to the extent of Rs. 3,257 the question whether it was properly done was not decided by the Tribunal.
The Tribunal for the reasons given by it in its order dated 31st March, 1948, held as follows :-
We therefore hold that the assessee cannot take into account the item of Rs. 27,012 and the figure of loss for the year of account would be (Rs. 39,517 minus 27,012) Rs. 12,505 which should be apportioned between the partners. The partners are entitled to claim a deduction in their individual assessments as provided under proviso 2 to Section 24(1).
A copy of the Tribunals order is annexure A and forms part of the case. The assessee has sought no reference in connection with the order of the Tribunal disallowing the sum of Rs. 27,012 for the purpose of the set-off under Section 24(1) of the Income-tax Act, although it seeks, by its reply to the Commissioners application under Section 66 (1) of the Act, to raise that point. In our opinion, the assessee cannot raise this question without making an application under Section 66(1) of the Act."
(3.) THE question is whether this sum of Rs. 12,505 can be taken into account by the partners of the registered firm in their individual assessment. THE submission of the Commissioner was that this was not a loss which could be so taken into consideration for the purpose of Section 24 of the Income-tax Act. Reliance was placed on Section 6 of the Income-tax Act. Under this section the heads of income chargeable to income-tax ar : (i) Salaries. (ii) Interest on securities. (iii) Income from property. (iv) Profits and gains of business, profession or vocation. (v) Income from other sources. (vi) Capital gains.
Under Section 10(2)(vi) the method of computing is given in respect of depreciation of buildings, machinery, plant, etc., and in proviso (b) to this section it is said :-
"Where full effect cannot be given to any such allowance in any year not being a year which ended prior to 1st day of April 1939, owing to there being no profits or gains chargeable for that year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of clause (b) of the proviso to sub-section (2) of Section 24, the allowance or part of the allowance to which effect has not given, as the case may be, shall be added to the amount of the allowance for depreciation for the following year and deemed to be part of that allowance, or if there is no such allowance for that year, be deemed to be the allowance for that year, and so on for succeeding years."
There was some dispute as to whether the words "subject to the provisions of clause (b) of the proviso to sub-section (2) of Section 24" were correct or the reference was to clause (a). On looking at the original Act XXIII of 1941. Section 6, and Act XI of 1944, Section 6, it was discovered that (b) was correct and not (a).